Archives for August 2012

August 2012 - Page 19 of 20 - Money Morning - Only the News You Can Profit From

Oil Prices: U.S. Drought Hurting More than Crops

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The unusually warm and dry weather across more than half of the United States has resulted in one of the worst droughts in U.S. history. Much has been made about how the crisis will affect crops and cattle, but it could also alter oil production and prices.

With nearly 64% of the contiguous United States in a drought, the highest percentage since the U.S. Drought Monitor began recording such data in 2000, the economic repercussions are searing.

To date, 2012 has already surpassed 2011's $12 billion in drought losses, and this year is on pace to rival the droughts of 1980 and 1988, which endured losses worth a current value of $56 billion and $78 billion, respectively.

According to 70 years' worth of data studied by the National Center for Atmospheric Research, weather (from heat waves to cold spells to droughts) can cause up to a 1.7% rise or fall each year in the U.S. economy's gross domestic product.

Farmers and agricultural companies have been voicing concerns, now oil and gas companies are speaking up.

With farmers trying to hold on to every ounce of water they find, oil companies don't know how they will get the water needed to drill into their oil fields.

"Water is the key to unlocking oil and gas. We take it for granted," in the U.S., said Chris Faulkner, president and chief executive officer of Breitling Oil & Gas, which has numerous operations in several of the new shale regions.

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U.S. Food Prices 2013: How to Profit from the Pain

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Rising U.S. food prices in 2013 are about to send U.S. consumers' grocery bills to new highs.

You see, the United States is in its worst drought since the Dust Bowl. Brutal heat waves and barely any rain have crippled farms across the country.

The U.S. Department of Agriculture (USDA) on July 25 issued a report warning every American to expect to pay 3%-4% more for groceries in 2013. That follows a 3.7% food price jump in 2011, and 3.5% expected in 2012.

"The drought is really going to hit food prices next year," Richard Volpe, a USDA economist, told Reuters. He said the pressure on food prices would start to build in 2012.

"It's already affecting corn and soybean prices," Volpe said, "but then it has to work its way all the way through the system into feed prices and then animal prices, then wholesale prices and then finally, retail prices."

Beef prices will be hit the hardest, as they are expected to rise 4%-5%, followed by dairy prices which could climb 3.5% -4.5%. Poultry and egg prices in 2013 are projected to go up 3%-4%, and pork prices 2.5% to 3.5%, the agency said.

But consumers don't have to succumb to the higher prices. You can actually profit from this trend by investing in these rising costs.

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U.S. Government Warns: High Food Prices To Hit Americans Hard

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Nearly 60% of all U.S. farmland has now been devastated by the drought gripping the Midwest. As a result, according to U.S. Secretary of Agriculture Tom Vilsack, household grocery expenses are set to swell nationwide.

Consumers are already paying record prices for beef, chicken and pork. But corn prices are soaring, too – up nearly 50% over the last six weeks – as crops continue to shrivel in what is officially the largest U.S. drought on record. Wheat prices are also up 50%.

A wet August would not improve the harvest, or prices.

According to global economic trend forecaster Chris Martenson, a former VP of a Fortune 300 company, the surge in food prices is not temporary.

"We've uncovered a catastrophic pattern in our nation's food system," Martenson said, "one we believe could soon hasten a world food crisis -a chain of events that could lead to massive food inflation, even riots."

Martenson's research is garnering widespread attention this month, after appearing in a newly released documentary.

His findings reveal that this catastrophic pattern is not limited to food prices…

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Economist Grantham: "Severe Global Food Crisis Unlikely To Go Away"

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Investors need to prepare for a severe food crisis that threatens "global stability" and is likely to last for many decades.

That's according to Jeremy Grantham, the founder of Boston-based institutional money manager GMO and one of the world's most famous investors, who in his latest "investment outlook" paints a frightening picture of what lies ahead.

According to Grantham, lack of food will be the world's foremost economic priority for decades. Even if we could produce enough food to feed everyone on the planet, he says, skyrocketing costs will mean millions won't be able to afford it.

If soaring food prices are coupled with sky-high gas prices, he said, "the risks of social collapse and global instability increase to a point where they probably become the major source of international confrontations."

Grantham says the potential devastation is badly underestimated by "almost everybody" including the pundits and the mainstream media.

One group of scientists, economists and geopolitical analysts, however, agree with Grantham's outlook. They believe, in fact, it's a much bigger problem which is why they've released their findings to the United Nations, UK Parliament, and 16 Fortune 500 companies.

"We've uncovered a catastrophic pattern in our nation's food system," said Chris Martenson an economic expert and one of the team's members. "One we believe could soon hasten a world food crisis -a chain of events that could lead to massive food inflation, even riots."

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Investing in Water Stocks: Profit from the New "Water Market"

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Investing in water stocks is about to become one of the hottest trends in 2012.

That's because the days of easy access to cheap commodities are drawing rapidly to a close. In the coming years, the prices of commodities are going to skyrocket – thanks to exponential growth.

Exponential growth in the Earth's population – over seven billion people and counting – means that all of the planet's finite resources are going to have to stretch farther to feed and fuel even more people. Everything from oil and gas to corn, wheat, potash, rare earth metals, timber – everything – is going to be harder to come by, and more expensive to procure.

We're also seeing similar growth in the population of the world's middle class, which means a rise in demand for everything a middle class existence entails, including meat (which requires more feed and processing – which means oil – to bring to the table), smartphones, cars, flat screen televisions, and everything else that we in the West enjoy, and even take for granted.

Including clean water.

Population Growth Creates a New "Water Market"

In places like China, India, and Latin America, where the burgeoning middle class is set to explode in the coming years, water use is already on the rise.

In the United States each person uses around 150 gallons of water per day, compared with around 20 gallons per day in emerging economies.

But global water usage is surging. What we take for granted in the West is in many cases just becoming the standard in many emerging markets around the world.

In fact, China and India already have the two largest water footprints (a broad measurement that aims to quantify global water use and consumption) of any country on the planet. And they're about to get even bigger as their consumption of commodities – water included – skyrockets.

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Five Predictions Ahead of the ECB Meeting Today

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Investors hope they don't get another disappointment from the European Central Bank (ECB) meeting today (Thursday) like the one the U.S. Federal Reserve delivered yesterday.

After the Fed said that the economy has slowed and unemployment remains elevated, but then took no action, investors turned to ECB President Mario Draghi to rescue the euro.

Yet, many economists think the Eurozone cannot be saved.

The Eurozone debt crisis has reached a point where further bailouts will only highlight their inadequacy to solve the problem. But, the countries involved in the crisis have come to the point where they expect further stimulus and will panic if none is given.

We have already seen riots in Spain where the unemployment rate is a Eurozone high of 24.8%, and it's not the only country facing serious unemployment issues. Behind Spain's depressingly high rate is Greece at 22.6%, Portugal at 15.4%, Ireland at 14.8% and France and Italy both with a 10.2% unemployment rate.

The unemployment rate for the Eurozone reached an all-time high of 11.2% in June. The latest numbers show unemployment increased by 123,000 to a total of 17.8 million. That is 40% higher than the 12.7 million unemployed in the U.S. as of the June jobs report.

The youth unemployment rate in Spain and Greece has topped 50% and this adds even more pressure for ECB president Mario Draghi to back up his emphatic statement that "the ECB is ready to do what it takes to preserve the euro. And believe me, it will be enough."

Unfortunately it will not be enough and if anything it will just make matters worse when Greece eventually exits the euro and it begins to collapse.

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How We'll Profit in the Coming Growth Crisis

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The mantra these days is that we need growth to offset a double-dip recession. After all, if the economy is growing, everything else ought to work itself out…

Right?

Well, it depends on the nature of the growth.

Everybody understands that a rapid increase of the currency in circulation is a ready path to inflation. They also get that accelerating growth concentrated in one economic sector will risk intensifying problems in other sectors that aren't participating in the advance.

Yet growth is still widely perceived as being a good in itself – a kind of general elixir for whatever ails a market.

How many times during the ongoing political campaign have we seen "growth" as the key to:

  • increasing employment;
  • reducing the budget deficit;
  • allowing a reduction in taxes;
  • permitting an increase in benefits;
  • creating better business startup opportunities; or
  • curing the common cold (or just about anything else that comes to mind)?

This is especially true with energy.

Pundits translate sluggish energy demand into a concern about economic decline. Expanding demand, on the other hand, is always regarded as evidence of everything that's noble and right about capitalism.

The point is made in both directions, actually.

Some consider an improvement in energy demand to be an indicator of an improving (by definition an expanding) economy. Others see signals of economic growth as a springboard for expanding fuel and power demand.

Either way, economic growth is the essential foundation upon which investment decisions are made in the energy sector. Positive or negative spin is given as part of every argument over oil, gas, nuclear, renewable and alternative sources, or biofuel advance.

Seems logical enough.

Yet consider this….

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Today's FOMC Meeting: We Could Wait Four More Months for Action

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The U.S. Federal Reserve continued its wait-and-see stance today (Wednesday) and remained in idle mode when it said and did little at the conclusion of its two-day Federal Open Market Committee (FOMC) meeting.

The central bank decided to leave rates unchanged, reiterated it would leave rates low through at least 2014 (not extending them to 2015 as expected) and did not announce a third round of quantitative easing.

The Fed chiefs did, however, voice that should conditions warrant, they are ready to step in and take aggressive steps to bolster the U.S. economy.

PIMCO's leader Bill Gross told CNBC that "a changing in policy landscape can be expected in a month or so."

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As Gold Prices Climb, This Options Trading Strategy Tells You When to Buy

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While most experts agree the long-term outlook for gold prices is still bullish, the yellow metal's pattern this summer can only be described as one of fits and starts.

In all, gold has made 11 short-term bottoms since May 29, the lowest being a close at $1,552.40 an ounce on June 28. Meanwhile, subsequent rally attempts have all quickly run into resistance, stalling out at near $1,620.

This start-and-stop action makes it extremely difficult for investors to avoid being "whipsawed."

Fortunately, there's a way around this dilemma: Just use an options trading strategy that lets the market itself tell you exactly when to buy gold.

And, here's the best part: This clever options trading strategy will cost you only a few dollars.

It can be used on gold futures – e.g., the standard 100-ounce CME Group contract, on any of the gold mining stocks or on the much more affordable gold-backed exchange-traded funds (ETFs) on which options trade.

Taking the Guesswork Out of Gold Prices

For ease of explanation, I'll base our example on the most popular and actively traded of the gold ETFs – the SPDR Gold Trust (NYSEArca: GLD).

Recently quoted at $155.75, the price of a single GLD share usually tracks the price of one-tenth of an ounce of gold (discounted by 2.5%-3.0% for fund expenses and storage costs for the metal that backs the shares).

Here's how you would initiate the strategy, based on actual prices available last Friday:

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The Lesser of Two Evils: Facebook vs. GM

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If you had to buy either Facebook Inc. (Nasdaq: FB) or General Motors Co. (NYSE: GM), which are both down 40% from their recent IPOs, what would you do?

On Wednesday Money Morning's Shah Gilani appeared on Fox Business' "Varney & Co." to tackle that question.

With GM trading around $20 and Facebook stock hovering around $21, the share prices are both at or approaching 52-week lows, but which is the better value?

Gilani's answer may surprise you.

Watch the entire accompanying video to get a full analysis on each company.

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